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THE FRENCH INDEMNITY OF 1871 
AND ITS EFFECTS 



ARTHUR E. MONROE 



THE discussion of the financial terms to be imposed 
on the defeated Central Powers recalls the famous 
five billion francs which Bismarck exacted from the 
French in 187 1, and suggests that the story of that great 
transaction may help us to make a more intelligent 
analysis of the complex situation that now faces us. In 
the present article, therefore, we shall try to bring to- 
gether such financial and commercial data as will give a 
fair idea of the importance of the indemnity payment in 
the economic history of the countries involved. Al- 
though the scantiness of some of the data makes exten- 
sive comparison difficult, enough has been found to give 
some interesting and significant results. 

According to the terms of the Treaty of Frankfort, 
France was to pay the five billion francs in the following 
instalments: x 

Thirty days after order was estab- 
lished in Paris 500,000,000 

During 1871 1,000,000,000 

By May 1, 1872 500,000,000 

By March 2, 1874 3,000,000,000 

On the last three billions, interest at 5 per cent was to be 
paid while the debt was outstanding. With the excep- 
tion of 125,000,000 in notes of the Bank of France and 
some 325,000,000 which were allowed for the railroad in 
Alsace-Lorraine, payment might be made only in the 
following: 

Gold or silver. 

Notes of the Bank of England. 

Notes of the Bank of Prussia. 

Notes of the Banque Royale des Pays Bas. 

Notes of the National Bank of Belgium. 

Bills of exchange on these countries. 

Some privileges of payment in advance were allowed, 
but only after due notice and not on account. 

For any country the size of France this would have 
been a tremendous task, but for a country almost with- 
out an established government — the first payment on 
the indemnity was to be " thirty days after order is re- 
stored in Paris " — it might well appear overwhelming; 
and German statesmen seemed justified in their expec- 
tation that it would effectively curb the French power 
for a comfortable time to come. The provisional gov- 
ernment set to work with commendable courage, how- 
ever, and on June 27, 1871 — forty-eight days after the 
signing of the final treaty — opened subscriptions for a 
loan of two billions in 5 per cent perpetual rentes to be 
issued at 82I. This was promptly oversubscribed, thus 

1 Except where otherwise noted, the details regarding the financial 
arrangements for paying the indemnity are taken from Leon Say's 
Rapport sur le Paiement de I 'Indemnity de Guerre (in Les Finances de 



providing for the indemnity payments till the end of 
1871. These payments, " the first two billions," as they 
were called, were made up of the following items: 

Alsace-Lorraine railroad 325,098,400.00 fr. 

Bank of France notes 125,000,000.00 

French gold 109,001,502.85 

French silver 63,016,695.00 

German coin and notes 62,554,115.93 

Bills: 

Thalers 312,650,509.01 

Frankfort florins 25,816,752.37 

Marks, banco 116,575,592.13 

Dutch florins 250,540,821.46 

Belgian francs 147,004,546.40 

Pounds sterling 624,699,832.28 

Thirteen months after announcing the first loan the 
government opened subscriptions for a second, this time 
for three billions, again in 5 per cent rentes, but issued 
at 84$. The response to this was astounding, for more 
than twelve times the amount desired was subscribed, 
more than half of the offers coming from foreign coun- 
tries. The amounts subscribed in the leading money 
markets show how widespread was the interest in the 
loan: 

Paris 11,500,000,000 fr. 

London 334,000,000 

Amsterdam 52,000,000 

Antwerp 61,000,000 

Hamburg 56,000,000 

Cologne 207,000,000 

Frankfort 206,000,000 

Berlin 175,000,000 

It is no small compliment to the credit of France at this 
time to note that about one-third of the foreign sub- 
scriptions were from Germany. 2 The remaining in- 
demnity payments, " the last three billions," were thus 
provided for, and were made in the following items: 

French gold 164,001,555.25 fr. 

French silver 176,275,180.75 

German coin and notes 42,485,029.25 

Bills: 

Thalers 2,172,663,212.03 

Frankfort florins 209,311,400.42 

Marks, banco 148,641,398.27 

Marks 79,072,309.89 

Belgian francs 148,700,000.00 

Pounds sterling 12,650,000.00 

Combining these figures with those for the " first two 
billions " and summarizing them, we find that the total 
indemnity was paid as follows: 

la France, 1, p. 363). This report is summarized in Blackwood's Maga- 
zine, February, 1875. (Reprinted in Rand's Selections Illustrating 
Economic History.) 2 Details from the London Economist. 



270 



THE REVIEW OF ECONOMIC STATISTICS 



" Compensations " 325,098,400.00 fr. 

French gold and silver' 512,294,933.85 

Bank notes, foreign coin 230,039,145.18 

Bills of exchange 4,248,326,374.26 

Of the French gold and silver only about 250,000,000 
francs were taken from active circulation, the remainder 
being obtained from the Bank of France and foreign 
sources. This sum, however, does not represent the 
total loss of specie attributable to the indemnity, for 
several hundred millions were exported by bankers to 
cover exchange transactions. Say estimated that the 
total loss of gold was about one billion francs. The 
country's stock of silver, on the other hand, increased 
by about 300,000,000 francs. This was principally due 
to the large sales of silver by the German government, 
which was just undertaking the vast recoinage by which 
its currency was changed to the gold standard. Much 
of this silver, it should be noted, had been received from 
France in the indemnity payments. The French gov- 
ernment, having the privilege of paying in gold or silver, 
had drawn considerable amounts of silver bullion from 
the Bank of Hamburg, when exchange rates made this 
profitable, and coined it into five-franc pieces to send to 
Germany. These soon found their way back to France 
in exchange for the gold that was wanted for the new 
reichsmarks. 

Although we have separated the indemnity payments, 
in the above discussion, according to the loans by which 
they were financed, it should not be inferred that these 
vast sums were transferred in two payments. It was 
arranged that subscribers to the loans might pay in easy 
instalments, and the payments to Germany were made 
in a similar way. During the last twelve months of the 
period of payment, remittances were made with great 
regularity, at the rate of nearly 250,000,000 francs a 
month. They were completed in September 1873. 

Turning now to the most important item in the sums 
paid to Germany — the bills of exchange — we find that 
these were acquired, in round numbers, as follows: 

Subscriptions to loans 1,773,000,000 fr.. 

Bankers' syndicate 700,000,000 

Bought in market 1,774,000,000 

The syndicate of bankers was formed to guarantee the 
second of the great loans, and in return for somewhat 
favorable terms on this undertaking agreed to furnish 
700,000,000 francs in bills suitable for payment on the 
indemnity. A comparison between the bills remitted in 
the " first two billions " and those sent later (p. 269 
above) reveals some important differences. The sterling 
bills, which were by far the largest item in the first pay- 
ments, became quite the smallest in the later ones, and 
bills on Germany make up the bulk of the sums paid 
over. This change was largely due to the conditions im- 
posed by the treaty. ' These stipulated that only gold 
and silver, or bills directly convertible into them, should 
be considered " liberative," and that if the French gov- 
ernment chose to exercise its option of paying in bills 
drawn on certain foreign countries, it must bear the 
expense incurred by the German government in con- 



verting them into German funds. Finding that such 
conversion by the German treasury was proving unduly 
expensive, the French undertook the operation them- 
selves and paid in acceptable German bills as far as 
possible. They were greatly aided in this design by the 
fact that throughout the period Germany was debtor to 
England, both on account of short-time securities sold 
in that country in financing the war, and because of an 
unfavorable balance of trade. In the first two billions 
only 23 per cent of the funds were in " liberative " bills, 
while in the later payments 88 per cent were of this sort. 

The operations of the French treasury thus became 
the most important factor in the demand for foreign 
exchange, and it will therefore be of interest to follow 
the developments in this market in some detail. Bills of 
every description, ranging in amount from less than 
1,000 francs to over 5,000,000, and evidently arising 
from all sorts of commercial and financial transactions, 
were included in the great total of over four billion 
francs remitted in this way. In Chart I the monthly 
averages of the London quotations for bills on Paris and 
Berlin during the period of the indemnity payments are 
plotted in percentage deviations from par. 1 Since the 
notes of the Bank of France, the legal tender of the 
country, were slightly depreciated at times, the value in 
gold of bills on Paris was subject to a corresponding de- 
preciation, i. e., the pound sterling commanded so many 
more francs, London prices being quoted in francs. It 
is with this " paper par," as determined by the premium 
on gold (indicated by a dotted line in the Chart) that 
the quoted rates must be compared in order to observe 
the play of the forces which ordinarily affect the price of 
exchange. 

Soon after beginning payments to Germany, the 
French treasury made a veritable raid on the foreign 
exchange market, buying heavily while also withdraw- 
ing specie from circulation for shipment to Berlin. The 
result was a sharp rise in the specie premium and in the 
price of sterling, late October seeing quotations of over 
2| per cent on the former and over 3 per cent on the 
latter. At these prices it paid to send gold to England, 
and on November 4 the Economist reported shipments 

1 Chart I is based on the following data computed from quotations 
in the Economist. London prices being given in francs and thalers, a 
rise in the rate is favorable to London. 

London Prices of Bills on Paris and Berlin 
(Monthly averages — percentage of par) 



January 

February . . . 

March 

April 

May 

June 

July 

August 

September . . 

October 

November . . 
December . . 



1871 



997 
98.9 

gg.i 
58.3 
98.8 
99.2 
98.7 



1872 



■s 

ft 



ioi.i 

100.8 

100. IS 

100.0 

100.4 

100.5 

100.4 

101.4 

zoi.2 

101.4 

101.5 

101.25 



98.8 
99.2 
99.4 
99-6 
gg.g 
99-4 
99.4 
99.2 
98.8 
99.4 
100.0 
99.4 



IS 



1873 



100.9 

100.7 

100.5 

■100.5s 

100.7 

101.0 

100.9 

100.6 

100.5 

100.3 

100.7 

100.2 



99.1 
99-3 
99-3 
98.9 
98.7 
99-6 
99-6 
98.9 
99o 
99-S 
99-8 
gg.6 



1874 



1 00.0 
99.8 
99.8 
99-7 
99-65 
99-65 
99.6 
99-65 
99.6 
99-5 
99-45 
99-7 



m 



99.0 
99.4 

99-7 
99.9 
IOO.I 

100.2 
100.2 
100.7 
100.7 
100.2 
100.3 
100.7 



.32 



THE FRENCH INDEMNITY OF 1871 AND ITS EFFECTS 



271 



CHART I. — LONDON PRICES OF BILLS ON PARIS AND BERLIN, AND PREMIUM ON 

GOLD IN PARIS, 1871-74 

(Monthly Averages, Percentage of Par) 



•^^* Paris 6/V/s 
a ^° Berlin .Siiis 
\ / Premium on 
go/d in Paris 




from France during the previous week. Meanwhile the 
reverse was taking place in Germany. The heavy re- 
mittances of sterling bills from France quickly depressed 
their price and the English export point was reached in 
July, shipments of gold being ordered late in the month. 
By September a further decline appeared, and gold con- 
tinued to leave England for Germany. At first these 
shipments were not regarded with concern, for, there 
was a plethora of money in London, discount rates of 
less than 2 per cent being quoted on three months bank 
paper. As the drain of gold continued, however, and it 
became evident that the German government was now 
London's most important creditor, considerable un- 
easiness appeared, and the probable policy of Berlin 
with regard to these large credits was the subject of 
much anxious speculation in Lombard Street. The 
watchful directors of the Bank of England advanced the 
bank rate to 3 per cent on September 21 and to 4 per 
cent a week later. (See Chart II for market rates.) This 
having proved ineffective, a further increase to 5 per 
cent was announced on October 12. German exchange 
soon began to move in favor of London, and the Bank 



H.5% 



+/-0% 



+0.5% 



Par 



-as% 



~/o% 



-l-57o 



-2.0% 



rate was lowered to 4 per cent on November 16. This 
was soon followed by another drop in German exchange; 
but as some gold was still being received from several 
countries, including France, no uneasiness was felt. 

CHART II. — MARKET RATES OF DISCOUNT IN 
PARIS, BERLIN, AND LONDON, 1871-73 

t 

(Monthly Averages) 

























ondon 
















/, 
















/t 








!\ 














/ \ 








/A\ 






,\ 








-*■--*; 


\ y 


'/ 




'/v 


*■ 


****+"' 













\J 










J 




**** 





























































2% 
1% 



With the beginning of the new year affairs took a very 
different turn. Not only had the German government 



272 



THE REVIEW OF ECONOMIC STATISTICS 



received no payments on the indemnity during the last 
months of 187 1, but it had been paying certain short- 
time obligations in London. This, combined with an 
adverse balance of trade, caused a rise in German ex- 
change which was not checked by the resumption of the 
indemnity payments in January and February. After 
the first week in March the French again ceased pay- 
ments and made no more till late in August, after the 
loan of the " last three billions." The result was a 
further rise in German exchange and a fall in the Paris 
rate. The renewal of the indemnity payments at the 
end of August was preceded by a rise in French exchange 
as the French treasury began its preparations, and was 
followed by a further sharp increase, as the payments 
proceeded. In November the rate went high enough to 
cause some shipments of gold to England. This was due 
partly to French purchases of silver in London, to be 
used in taking advantage of the privilege of making in- 
demnity payments in that metal, and partly to a con- 
siderable stringency which developed in the London 
market, carrying rates on the best bank paper to over 
7 per cent. These rates affected German exchange even 
more adversely for a time, and the German government 
discreetly suspended the rather considerable purchases 
of gold for its new coinage which it had been making for 
some time. These disturbances contributed, no doubt, 
to the financial crisis in Berlin a month later (Decem- 
ber), when bank accommodation was sharply restricted 
and forced sales of securities in foreign markets were 
reported. 

As we have already seen, the French continued their 
indemnity payments with great regularity during 1873. 
They were also following their new policy of paying in 
bills on Germany, as far as possible. This great demand 
caused exchange to continue favorable to Germany, 
despite the heavy buying by Germans in foreign 
markets, which was leading to an increasingly unfavor- 
able merchandise balance of trade (see Chart III) ; * and 
in consequence the shipment of gold from England to 
Germany continued almost without interruption during 
the first half of the year. The heavy English subscrip- 
tions to the second French loan, on the other hand, en- 
abled the French treasury to carry out these operations 
without raising French exchange above the paper par. 
Meanwhile the European money marketswere consider- 
ably disturbed by the serious embarrassments in Vienna 
and it was probably with a certain relief, therefore, that 
the Economist printed a report from its Paris corre- 

1 Chart III is based on the following data, computed from figures 
in the National Monetary Commission's Statistics for Great Britain, 
Germany, and France : 

Merchandise Balance of Trade of France and Germany 

France Germany France Germany 

1871 —138.8 1876 — 82.4 —313.2 

1872 ...+ 38.4 —234.7 1877 — 46.8 —252.0 

1873 + 46.4 -368.7 1878 -199.0 -155-2 

1874 + 38.6 —314.2 1879 —272.8 —248.2 

1875 + 67.2 —259.0 1880 — 313.0 +30.0 

2 Economist, April 4, 1874. 

3 V. Bonnet, Le Credit et les Banques d' Emission, p. 243. 



CHART III. — MERCHANDISE BALANCE OF TRADE 
OF FRANCE AND OF GERMANY, 1871-80 

(Million Dollars) 



+zoa 

Excess 

of +100 
Exports 














France. 

Germany 


















/ 
/ 


























/ 

I 

I 

I 
I 
I 


Excess ~'°° 
of -soo 

//TipOrf-3 ~300 
















I 

I 

I 
I 
I 




\ 
\ 
\ 
\ 




/\ 


/ 

/ 




I 

1 




\ 
\ 
\ 
\ 

\ 




.' 


\/ 









/<37/ 



/37S 



spondent (May 24) of a rumor that the French govern- 
ment intended to relieve the drain on the money 
markets by paying the next indemnity instalment in 
gold borrowed from the Bank of France. This arrange- 
ment was, in fact, carried out to the extent of 150,000,- 
000 francs, but the principal reason seems to have been 
the convenience of the French treasury, which wished to 
anticipate instalments still due on its last loan. It did 
have a favorable effect, however, for the German gov- 
ernment suspended its demand for gold for several 
weeks, and the Bank of England's discount rate, which 
had been kept at 6 per cent for over a month was down 
to 3 per cent by the end of August. 

This may be said to mark the end of the direct in- 
fluence of the indemnity payments. They were com- 
pleted in September, and before the end of that month 
the failure of Jay Cooke and Company had brought 
the American financial structure down in a crash which 
soon reacted on the European markets. It was now the 
American demand which threatened the English gold 
stock and carried the Bank of England's rate to 9 per 
cent early in November. Once this was checked, the 
English market lapsed into the state of dullness which 
usually follows such periods of stress. French exchange, 
relieved of the treasury demand, began a steady decline 
which, by the end of March, had reached a price at 
which there was a slight profit in shipping French coin 
from England, and, a month later, made even the ship- 
ment of bullion profitable. Germany also found French 
exchange going against her, and made large shipments 
of gold to that country. It was reported, in fact, that 
most of the gold being added to the Bank of France's 
store was coming from the branch at Nancy through 
which most of the business with Alsace-Lorraine was 
carried on; 2 and it is said that during the year France 
received more gold from Germany than she had sent in 
paying the indemnity. 3 

The remittance of bills of exchange is, of course, only 
the mechanism in the fundamental operations of buying, 



THE FRENCH INDEMNITY OF 1871 AND ITS EFFECTS 



273 



selling, lending, and borrowing, which constitute the 
trade of the world; and we must therefore look beyond 
the four billions of bills which France sent to Germany, 
if we wish to discover the real values in which this part 
of the great debt was paid. French economists have 
devoted considerable attention to this question, but the 
lack of data on many important points reduces most of 
their conclusions to rough estimates. 

Specie, according to M. Say's calculations, accounted 
for only about 200,000,000 francs of the bills, this being 
the difference between the net diminution in the coun- 
try's monetary stock (700,000,000 francs, as pointed out 
above) and the 500,000,000 francs exported by the 
treasury. If we turn now to the figures for France's 
foreign trade (Table I), we discover some striking 

TABLE I. — FOREIGN TRADE OF FRANCE 
AND GERMANY* 





Germany 
(Million marks) 


France 
(Million francs) 


Year 


Imports 
including 
precious 

metals 


Exports 

including 

precious 

metals 


Imports 

excluding 

precious 

metals 


Exports 

excluding 

precious 

metals 


Imports 


Exports 


1871 

1872 

1873 

1874 

1875 

1876 

1877 

1878 

1879 

1880 


t 
3464 
4254 
3670 

3573 
39" 
3872 

3715 
3888 

2844 


t 
2492 
2465 

2459 
2560 
2605 
2827 
2905 
2820 
2976 


t 
3256 
3752 

3599 
3527 
3798 
3768 
35°6 

3767 
2803 


t 

2317 
2277 
2342 
2491 

2545 
2760 
2885 
2774 
2923 


3567 
3570 
3555 
3508 

3537 
3988 
3670 
4176 
4595 
5033 


2873 
3762 

3787 
3701 

3873 
3576 
3436 
3180 

3231 
3468 



* From Statistics for Great Britain, Germany, and France (National 
Monetary Commission). 

f Data were not collected for years prior to 1872. 

changes which will help to explain the source of these 
bills. During the five years ending 1871 the French 
imported annually over 300,000,000 francs worth of 
goods more than they exported, and at the same time 
imported considerable sums of specie. This is natural 
enough for a country which had, according to Say, an 
income of some 700,000,000 francs a year from foreign 
investments, and realized considerable sums from the 
expenditures of foreign residents and travelers. In 1872 
all this changed. By the end of April exports equaled 
imports, a month later they exceeded them by 40,000,- 
000 francs, and on the year's trade showed a " favor- 
able " balance of over 190,000,000 francs. This turn of 
events was apparently due to the large French grain 
crop and the revival of industry, for the imports showed 
no decline over the previous year. The foreign trade of 
the next year made an even better showing, through a 
further increase in exports, imports remaining almost 
unchanged. In these two years, therefore, French 
traders had a balance of over 500,000,000 francs in bills 
which they could sell to their government. 1 

The two items above mentioned — specie and the 
merchandise balance — make a total of but little more 



than one-sixth of the bills, and so we must seek further. 
The large earnings derived by French investors from 
their foreign securities had been devoted in part to pay- 
ing for France's balance of imports, in part to her annual 
imports of specie, and in part to further investments 
abroad. The first two, it is evident from the above, no 
longer claimed any of these funds, and there is evidence 
that the last was also abandoned. The London Econo- 
mist, for example, reported on January 6, 1872 that two 
subscriptions recently opened on the Paris market had 
proved complete failures, one having received too little 
to pay the cost of advertising. We may conclude, there- 
fore, that practically all the income from French foreign 
investments was being turned over to the government 
in exchange for the bonds of the new loans. This was 
probably reduced below the pre-war figure by sales of 
French holdings during 1870 and 1871, but as this de- 
crease is probably offset by the expenditures of foreign 
residents and travelers in France, which we have not 
counted, we may take Say's estimate of the earnings of 
French investments (700,000,000 to 800,000,000 francs 
annually) as a fair indication of the funds obtained by 
the French treasury from this source. This would 
amount to over 2,100,000,000 francs in the three years 
of the indemnity payments. 

Although quantitative data regarding the remainder 
of the bills (about one billion francs) is almost wholly 
lacking, we may safely ascribe them to two sets of trans- 
actions: sales in foreign markets of foreign securities 
owned by Frenchmen, and subscriptions by foreigners 
to the French loans. As for the first we may cite certain 
figures collected by Say. In 1868 the coupons of Italian 
rentes paid in Paris amounted to 85,000,000 francs, in 
1872 to only 60,000,000; coupons on Turkish rentes 
decreased in still greater proportion. Reference has 
already been made to the heavy foreign subscriptions to 
the second French loan, but it is not possible to give 
definite figures concerning the allotments. French 
economists assert that most of these bonds soon found 
their way back to France, the French buyers paying for 
them as they had paid their direct subscriptions — in 
funds derived from foreign investments. 

Even less definite data are available concerning the 
other side of the picture — the form in which Germany 
received her ultimate payments of the sums represented 
by the four billions and over of bills of exchange. We 
have already mentioned one of these in discussing the 
movement of the exchanges, where we noted several 
periods when Germany was importing large sums of 
specie. Although definite figures on this point cannot 
be obtained, we can work out a rough approximation 
from the figures for exports and imports, which are 
published in two categories: "including the precious 
metals " and " excluding the precious metals " (Table 
I). By comparing these figures we find a net specie im- 

1 Say argues that this balance was more than neutralized by the 
heavy imports of 1871; but, as O'Farrell points out {The Franco- 
German Indemnity, p. 14), there is no reason to believe that France, 
with her large revenues from abroad as an offset, was indebted for all 
these goods. 



274 



THE REVIEW OF ECONOMIC STATISTICS 



portation of 347,600,000 marks for the two years 1872 
and 1873. Since exchange was more favorable to Ger- 
many during 1871 than during 1872, we may assume 
that more specie was imported, though probably less 
than in 1873. Thus we may take 500,000,000 marks as 
a rough estimate of the increase in the monetary stock 
of Germany during the period. If we assume that this 
includes the cash received in the indemnity payments 
(400,000,000 marks), which is not clear, we have 100,- 
000,000 marks remaining as the amount of specie ob- 
tained with bills of exchange. This probably under- 
states the case. 

An inspection of the foreign trade statistics given 
above (Table I) reveals another possible item to be paid 
for out of the four billions of bills; for it at once appears 
that Germany was importing more commodities than 
she exported during this period; over 2,400,000,000 
marks in the two years 1872 and 1873. Now in order to 
determine whether this balance of imports was a new 
development, and therefore a probable offset for a part 
of the bills remitted by France, we should need to know 
the figures for earlier years, but these unfortunately are 
not to be had. As a rough indication of the probable 
development, however, we may cite the figures for 
German trade with certain countries (Table II). From 

TABLE II. — GERMANY'S TRADE WITH 
FOREIGN COUNTRIES* 





United Kingdom 
(Million marks) 


France 
(Million francs) 


Belgium 
(Million francs) 


United States f 
(Million marks) 


Year 


Exports 

to 
Germany 


Imports 

from 
Germany 


Exports 

to 
Germany 


Imports 

from 
Germany 


Exports 

to 
Germany 


Imports 

from 
Germany 


Exports 

to 
Germany 


Imports 

from 
Germany 


1869 


640 


366 


253 


230 






164 


IOO 


1870 


560 


308 






128 


108 


168 


I08 


1871 


768 


384 






196 


213 


140 


IOO 


1872 


862 


384 


409 


211 


223 


158 


164 


184 


1873 


734 


398 






248 


iS7 


252 


244 



* From Statistical Abstract for the United Kingdom, M. Block, 
Statistique de la France, Paris, 1875; Statistique de la Belgique: Com- 
merce avec les Pays Etranger; United States Monthly Reports on 
Commerce and Navigation, 1874. 

t Figures for North German states only. 

these it appears that German exports to Great Britain, 
France, and Belgium showed comparatively little 
change from the pre-war figures, while imports from 
these countries increased 30-60 per cent. Only the 
trade with the United States seems to have developed 
an opposite tendency; but these figures, it should be 
noted, are for the North German states alone, and by 
no means offset the trend in the other countries. Al- 
though the evidence is far from conclusive, there seems 
to be ground for believing that Germany's balance of 
merchandise imports increased during the period. If 
we assume that the balance in 1871 was probably less 
than that for the two years for which we have data, we 
may take three billion marks as the total balance for the 

1 B. Serrigny, Les Consequences Economiques et Sociales de la Pro- 
chaine Guerre, 1909, pp. 379, 380. 



three years; and of this at least a third, and probably 
more, must represent goods paid for with indemnity 
funds. 

These two items (gold and merchandise) by no means 
absorb all the bills received from France, and we must 
seek for less tangible factors to account for them. We 
have already seen that the German government had 
borrowed considerable sums in London to finance the 
war, and paid these debts in the years immediately fol- 
lowing. It is impossible to say how great these obliga- 
tions were; but since over a billion and a half of the 
indemnity was set aside for the payment of the expenses 
of the war, as we shall see later, it seems likely that the 
payments to London were for large amounts. Another 
transaction requiring payments abroad was the pur- 
chase of foreign securities. Not only did German citi- 
zens subscribe heavily to the second French loan, 
making offers for some six billion francs, but in the wave 
of speculation which swept over the country other 
foreign investments were very popular. 1 The govern- 
ment alone had several hundred millions to invest for 
certain funds to which a part of the indemnity had 
been devoted, and a considerable share of this sum must 
have contributed, directly or indirectly, to the demand 
for securities owned or issued abroad. Other intangible 
imports probably increased also, but data concerning 
these cannot be obtained. 

The spending of money is usually so easy, especially 
for governments, that we shall not find it worth while to 
devote much time to describing Germany's use of the 
indemnity funds. The following summary, compiled 
from figures given by Wagner, 2 shows the more impor- 
tant of the items involved: 

EXPENDITURE OF THE INDEMNITY 
(Million Francs) 

War costs 1,689.0 

Pensions and pension fund 738.7 

War damages 174.8 

Fortifications 421.8 

War treasure 150.0 

Other military expenses 450.0 

Navy 1 19.6 

New Reichstag building 30.0 

Alsace-Lorraine railroad 511-8 

Luxembourg railroad 23.6 

Paid South German states 583.1 

Miscellaneous 108.0 

Information concerning the use made by the South 
German states of their quotas is not available, but it is 
known that the funds were largely devoted to various 
military purposes. 

Even a casual inspection of the above table reveals 
the importance of war expenditures in the total. If we 
include the bulk of the sums paid to the South German 
states in this category, we find that over four-fifths of the 
indemnity was absorbed by expenditures attributable 
to war and preparation for war. The funds destined 

2 A. Wagner, " Das Reichsfinanzwesen," Jahrbuch fiir Gesetzge- 
bung, Verwaltung, und Rechtspflege, 1874, 3, pp. 112 fi. 



THE FRENCH INDEMNITY OF 1871 AND ITS EFFECTS 



275 



for uses which did not require immediate disbursement 
were invested in various securities, of which the most 
important classes were: bonds of the German states, 
certain railroad bonds, bills on London, and collateral 
loans. 1 

To discover the full significance of the indemnity for 
Germany, we must go beyond the evidence afforded by 
the above statement of government accounting. The 
expenditures and investments provided for in these 
plans released on the German market, within about two 
years, a sum nearly three times as great as the total 
monetary stock of the country and considerably greater 
than the combined debt of all the German states, in- 
cluding debts incurred for railroad building, 2 and seri- 
ous readjustments were sure to be required. This did 
not wholly escape German leaders. Herr Bamberger, a 
member of the Reichstag, argued vigorously that the 
German market could not absorb these funds so quickly 
without risking grave difficulties, and urged that the 
government should keep some of them in foreign invest- 
ments for a while; 3 but these views did not prevail. 

All the conditions were favorable for a great industrial 
expansion. To the feeling of pride and confidence 
aroused by the brilliant military victory was added the 
stimulus of comparative ease in the money market and 
the prospect of large government expenditures. Dis- 
count rates in Berlin, which for some years before the 
war had averaged higher than the rates in London and 
Paris, and since the middle of 1869 had seldom been 
below 4 per cent, remained at about 3! per cent for a 
year after the indemnity payments began, a rate well 
below that prevailing in Paris but still generally above 
London figures. 

Financial and industrial conditions soon showed the 
effects of this situation. A livery speculative movement, 
affecting both domestic and foreign securities, was fol- 
lowed by the organization of a host of new undertakings 
of all sorts, whose shares found ready purchasers. Al- 
though not confined to Germany, this expansion was 
much more pronounced there, as may be seen from the 
figures given in Table III. More than twice as many 
companies were organized in the two years 187 1 and 
1872 as in the seventy years before. Some of this de- 

TABLE III. — NUMBER OF JOINT STOCK 
COMPANIES ORGANIZED * 



Year 



187I 
1872 

1873 
1874 

1875 
1876 
1877 
1878 
1879 
l88o 



Germany 


Austria 


France 


207 


127 


83 


479 


248 


2 39 


242 


98 


220 


90 


15 


214 


55 


8 


253 


42 


4 


239 


44 


5 


290 


42 


2 


256 


45 


3 


5ii 


97 


13 


797 



United 

Kingdom 



821 
1116 
1234 
1 241 
1172 
1066 

990 

886 
1034 
1302 



velopment was doubtless due to the liberalizing of the 
legislation governing joint-stock companies in 1870, but 
other forces played an important part. 4 The nature of 
these new ventures is very significant. According to 
figures cited by Max Wirth 6 (Table IV), a strikingly 

TABLE IV. — SECURITIES ISSUED IN 1872* 
(Million Francs) 





Government 


Banks 


R.R. and 
industries 


Germany 


26.32 

94-31 
905.02 

3500-05 


432.41 
377.00 
10.00 
280.50 
229.50 


913.12 

5I7-23 
II29.70 

I93.IO 
1209.98 


Austria 


United States 


France 


Great Britain 





* From Moniteur des Interits Industrials, 
schichte der Handelskrisen, p. 511. 



Cited in Wirth, Ge- 



large share of them (about a third) were in the field of 
banking. There was, in fact, a veritable mania for this 
form of investment, both in Germany and Austria. In 
1870, the shares of forty-eight banks with a capital of 
847,000,000 marks were quoted in Berlin; three years 
later ninety-five more banks with a paid-in capital of 
only 150,000,000 marks had been organized. 6 These 
new institutions, though organized with scantier funds, 
undertook the financing of all kinds of enterprises, 
thereby adding to the general expansion. The figures 
in Table V give a further indication of the part played 

TABLE V. — GERMAN GREAT BANKS* 





Deposits 
(Million marks) 


COIXATERAL LOANS 

(Million marks) 


Year 


Deutsche 
Bank 


Diskonto- 
gesell- 
schaft 


Darm- 
stadter 
Bank 


Deutsche 
Bank 


Diskonto- 
gesell- 
schaft 


Darm- 

stadter 
Bank 


1871 

1872 

1873 

1874 

1875 

1876 

1877 

1878 

1879 

1880 


8 

9 

7 

11 

12 

14 
10 

9 
12 

13 


14.8 
16.8 
64.8 

36-5 

9.2 

u-3 

7-5 
7.2 
8.0 
9-7 


22.4 
I2.0 

27-3 
16.4 
12.8 
9.1 
1.9 
5-6 
5-7 
6.1 


13.2 
19.9 

8.7 

14-5 
16.4 
32.2 
11.0 

15-5 
34-8 
26.2 


8.4 

37-8 
16.1 

14-5 
.6 

i-5 
2.1 

5-3 
14.7 
24.8 


7-9 

14-7 

15-3 

9.6 

10.3 

7.6 
8.9 
18.5 

28.0 

30-3 



* From Handworterbuch der Staatswissenschaften. 



* From J. Riesser, German Great Banks, 1911, pp. 205 ff., 321 ff. 

by the banks, the increase in their collateral loans and 
deposits being quite marked in the early seventies. All 
this was accompanied by a vast bank-note expansion 



1 G. A. Soetbeer, "Die Fiinf Milliarden," p. 9 (in Deutsche Zeit- 
und Streit Fragen), Berlin, 1874. 

2 Ibid., pp. 7-8. 

3 L. Bamberger, Politische Schriften, Berlin, 1896, vol. 4. 

4 G. A. Soetbeer, "Die Funf Milliarden," p. 44. Engels' figures for 
the early period are somewhat larger. Handworterbuch, 1, p. 190. 

6 Max Wirth, Geschichte der Handelskrisen, 1874, p. 511. 
6 B. Serrigny, Les Consequences Economiques et Sociales de la Pro- 
chaine Guerre, Paris, 1909, p. 382. 



276 



THE REVIEW OF ECONOMIC STATISTICS 



which added some 40 per cent to the money in circu- CHART V. — AVERAGE PRICES OF THE SHARES OF 

lation. 1 THREE RAILROADS IN FRANCE, IN GERMANY, 

It was not long before prices reflected these changes. AND IN ENGLAND, 1871-80 

In 1872 they were nearly 15 per cent above the pre-war (Percentage of Par) 
level (Chart IV), and in 1873 they were still higher. 



CHART IV. — INDICES OF GENERAL PRICES IN 
FRANCE, GERMANY, AND ENGLAND, 1870-80 

(Average for 1865-69 = 100) 









/ 


\ 
\ 














Germany 

Engtend 






/ 
1 
1 


/ 


\ 
\ 
\ 
\ 












1 , 

Is? 




w 


\ 
\ 

\ 












/05 






'1 / 

f .' 




\\ 


\ 
\ 

\ 


\ 










95 


/,-•- 








\ 






A 

\\ 




















• V 


1 
^ 


1 
1 
1 


£5 


















\ 
\ 

■■-. \ 


/ 

1 .■■- 
1 ..••• 























737/ 7672 /<S7J A374 /G7J /S7S /iS77 /37<3 /<279 





7ce 

snc/ 














300 


Gerr 
















EnqA 




























































































































































/ 


\ 


















/ 
/ 

/ 


\ 
\ 


















f******* 


— ^C 




















\ 


****._ 










/ 


/ 








"^ 


\ 








/ 
/ 






....■* 






\ 

■ ■■■\ 








/ 
/ 












\ 
\ 






S 


f 

































































£7/ &7£ AST70 



/073 4S7S /077 /B7S /S79 



Here again the same phenomenon appeared in other 

countries but in less degree, French prices rising less TABLE VII. — PRICES OF GERMAN BANK SHARES * 

than half as much, and English prices midway between. 2 . 

Security prices also showed a marked upward trend; 



Year 



TABLE VI. — INDICES OF GENERAL PRICES 
1865-69 = 100 





France 


Germany 


Great Britain 


Year 


Annuaire 
Statistique 


Palgrave's 
index 


Schmitz' 
index 


Soetbeer's 
index 


Sauerbeck's 

index 


Economist 
index 


1870 

1871 

1872 

1873 

1874 

1875 

1876 

1877 

1878 

1879 

1880 


IOO.9 
IO4.3 
108.4 
108.4 
IOO.3 

97-5 
98.2 
98.9 
90.7 
88.6 
90.7 


91 
102 

105 

105 

97 

95 
95 
96 

91 
87 
88 


98.0 
102.8 
113.8 
118.3 
109.2 
102.3 

99.9 
100. 1 

92.4 

84.3 

93-4 


99-4 
102,7 
109.7 
111.8 

IIO.I 

105-1 
103.7 
103.3 

97-5 
94-7 

98.5 


96 
100 
109 
in 
102 

96 

95 
94 
87 
83 

88 


87 

84 
92 

95 
93 
90 

88 
88 
82 

7i 
82 



1870 
1871 
1872 

1873 
1874 

1875 

1876 
1877 
1878 
1879 
1880 



Diskonto- 
geseUschajt 



138.0 

225.0 

335-o 
179.7 

177.2 

135-5 
107.2 
100.5 

130-5 
193.2 

183-5 



Darmsl&dler 
Bank 



130.0 
185.O 
216.O 
l6l.O 
154.O 
1 19.0 

100.0 

IOI.2 

"5-7 
148.7 

i55-o 



Deutsche 
Batik 



IOO.7 
1 18.O 
H5-8 

84-5 
89.2 

77-5 

80.0 

89.1 

100.7 

J 45-3 

153-5 



and, as usual, the rise anticipated the general expansion, 
the highest quotations being generally found in 1872. 
The shares of three German railroads rose nearly 13 per 
cent in that year (Chart V); 3 while bank shares ad- 
vanced even more, in some cases over 100 per cent in 
two years. (Table VII.) These increases were not 

1 G. A. Soetbeer, "Die Ftinf Milliarden," p. 48. 

2 These comparisons are based on the index numbers of Schmitz, 
Sauerbeck, and the Annuaire Statistique, which seem to be the most 
comparable of the available figures of the kind. In Table VI three 
other well known index numbers are also given. 3 See Table 8. 

4 Wirth gives many examples, Geschichte der Handelskrisen, 1874, 
PP- 563, 564- 



* From R. van der Borght, Statistische Studien Uber die Bewahrung 
der Actiengesellschaften, 1883. 

paralleled in all industries, to be sure, but there was a 
rise all through the market. 4 

This price movement was only one aspect of a much 
broader industrial expansion, which we shall try to fol- 
low in some detail. The gross receipts of the Prussian 
railroads were nearly 20 per cent greater in 1873 than in 
1 871; and although much of this was due, apparently, 
to the 16 per cent increase in railroad mileage during 
these years, it is nevertheless an indication of great in- 
dustrial activity. The receipts per kilometer, moreover, 
show an appreciable gain for the roads as a whole, from 
which we may conclude that the older roads enjoyed 
great prosperity. The French roads, on the other hand, 
though they increased their mileage nearly as much as 
the Prussian roads, did not make as great gains in their 
receipts (Table IX) . The output of the basic industries, 



THE FRENCH INDEMNITY OF 1871 AND ITS EFFECTS 



277 



TABLE VIII.— PRICES OF RAILROAD SHARES IN 
FRANCE, GERMANY, AND ENGLAND * 

(Averages of End-of-the-month Quotations) 



TABLE X. — PRODUCTION OF PIG IRON* 





France 


Germany 


England 


Year 


North- 
ern 
R.R. t 


Paris- 
Medit. t 


Southern 
R.R.I 


Berlin- 
Ham- 
burg 


Rhei- 
nisch. 
R.R. 


Koln- 
M lin- 
den 


Great 
North- 
ern 


London 
North- 
western 


Mid- 
land 
R.R. 


1871 


989.O 


881.6 


626.7 


170.2 


166.O 


I78-5 


132.7 


138.3 


133-3 


1872 


977.O 


8 5 1.2 


596-5 


237.O 


169.5 


I72-5 


137-2 


150.8 


144.7 


1873 


IOI8.8 


862.9 


594-2 


I99.O 


145-3 


I46.5 


130.6 


147.4 


136.9 


1874 


I054-3 


889.5 


621.7 


205.O 


i33-o 


124.7 


138.0 


149. 1 


I32.O 


1875 


II74.7 


944.6 


693.6 


I76-5 


II7-4 


96.2 


139.0 


146.6 


142.4 


1876 


1248.3 


989.O 


753-4 


I75-0 


112.8 


IOO.5 


132-1 


144.O 


132.7 


1877 


1264. 1 


IO23.2 


768.2 


175-0 


104.2 


84.I 


122.4 


I47.O 


126. 1 


1878 


I365- 2 


I077.3 


824.2 


I9O.O 


108.9 


I02.6 


111.4 


144. 1 


124.2 


1879 


I47I-5 


"45-5 


863.8 


191.0 


i55-o 


145-7 


118.2 


I42.O 


I26.7 


1880 


1608.3 


1344.0 


1029.8 


236.O 


160.2 


149.0 


124.0 


158.6 


I38.I 



* Quotations for French railroad shares from the London Econo- 
mist, for German shares from Borght, Statistische Studien iiber die 
Bewahrung der Actiengesellsckaften, and for English shares from the 
London Economist. f P ar 4 00 - t P ar 5°°- 



TABLE IX. — GROSS RECEIPTS OF RAILROADS IN 
FRANCE, PRUSSIA, AND GREAT BRITAIN * 





France 


Prussia 


Great Britain 


Year 


Total 
million 
francs 


Per kilom. 
1000 
francs 


Total 
million 
marks 


Per kilom. 
1000 
marks 


Total 
million £ 


Per mile 
1000 £ 


187T 

1872 

1873 

1874 

1875 

1876 

1877 

1878 

1879 

1880 


715 
792 

833 
819 
863 
887 

868 

932 

946 

1061 


46.3 

45-4 
45-9 
43-6 

44-5 
44.2 
44.2 
43-4 
42-5 
45-9 


1334 
147.7 

159-9 
165.6 
165.8 

165-3 
164.3 
161.4 
194.9 

242.2 


24-5 
25.1 
25.2 
25.6 
24.1 
22.4 
19.9 
17.7 
19.6 
16.3 


48.8 

53-2 
57-7 
59-2 
61.2 
62.2 
62.9 
62.8 
61.7 
65-4 


3-09 
3-29 

3-49 
3-5o 
3-56 
3-57 
3-57 
3-5i 
3-39 
3-53 



* Figures for France from Statistics for Great Britain, Germany, and 
France (National Monetary Commission) ; for Prussia from Schwartz 
and Strutz, Die Staatshaushalt und die Finanzen Preussens, App. 
LXV; and for Great Britain from Statistical Abstract for the United 
Kingdom, 1868-84. 

iron and coal, gives further evidence of the expansion of 
business. The production of pig iron increased about 50 
per cent in the two years after 1 87 1 and more than doubled 
in value, while nearly 25 per cent more coal was mined. 
In France the increase in both these commodities was a 
little larger (Tables X and XI), but as production must 
have been unfavorably affected by the political dis- 
orders in 187 1, the year with which comparison is made, 
this difference is not very significant. It is probable, 
moreover, in view of the great increase of French ex- 
ports to Germany in 1873, 1 that this activity reflects the 
expansion of German rather than French industry. The 
total production of all mining industries in Germany 
was about 24 per cent greater in 1873 than in 1871. In 

1 Statistics for Great Britain, Germany, and France (National Mone- 
tary Commission), p. 349. 



Year 



1871 
1872 

1873 
1874 

1875 
1876 
1877 
1878 
1879 
l88o 



France t 



Thousand 
tons 



860 
I2l8 
1382 
1416 
1448 

H35 
^07 
1521 
1400 

!725 



Germany 



Thousand 
tons 



1492 
1927 
2174 
1856 
1981 
1 801 
1899 
2119 
2201 
2692 



Million 
marks 



III.4 
209.2 
234.O 
150.6 

136.5 
I06.O 
IO4.9 
I IO.3 

108.8 

157-6 



Great Britain 



Thousand 
tons 



663O 
6740 
6570 
5990 
637O 
6560 
66lO 
6380 
60OO 
7750 



Million 
£ 



16.6 
18.5 
18.O 
16.4 

15-6 
16.0 
16.1 
16.1 
14.9 
19-3 



* From Statistics for Great Britain, Germany, and France (National 
Monetary Commission), and Statistical Abstract for the United King- 
dom, f The value of the French output is not given. 



TABLE XL— PRODUCTION AND VALUE OF COAL* 





France 


Germany 


Great Britain 


Year 


Million 

tons 


Francs 
per ton 


Million 
tons 


Marks 
per ton 


Million 
tons 


Shillings 
per ton 


1871 

1872 

1873 

1874 

1875 

1876 

1877 

1878 

1879 

1880 


13.2 

15-8 
17.4 
16.9 
16.9 
17.1 
16.8 
16.9 
17.1 
19-3 


I2.4 

13-4 
16.6 

16.5 

15-9 

15-3 
14.0 

13-5 
12.8 
12.7 


29-3 

33-3 
36.3 
35-9 
37-4 
384 
37-5 
39-5 
42.0 

46.9 


7-4 

8.9 

11. 1 

10.7 

7-9 
6.8 

5-6 

5-2 

4.8 

5-2 


"7-3 
123-5 
127.0 
125.0 
131-8 
133-3 
134.6 
132.6 
134.0 
146.8 


6.0 

7-4 
7-4 
7.2 
7.0 
7.0 
7.0 
7.0 
7.0 
8.6 



* From Statistics for Great Britain, Germany, and France (National 
Monetary Commission), and Statistical Abstract for the United King- 
dom. 

textiles also there was an immense expansion, the con- 
sumption of raw cotton having nearly doubled, as 
appears in the following table: 2 

TABLE XII. — CONSUMPTION OF RAW COTTON 

(Million Hundredweight) 

Germany England France 

1865-69 1.2 8.0 1.7 

1870-74 2.1 IO.7 I.5 

1875-79 2.4 10.9 1.8 

It may be objected that this comparison between 
Germany and France gives a misleading impression, 
since the industrial expansion of the early seventies 
was quite general in Europe, while France, her energies 
being absorbed by the payment of the indemnity, was 
least affected. I have therefore included in the above- 
mentioned tables some of the more important statistics 
of England's industrial development during this decade, 
in order to compare German conditions with a situation 
more normal than that in France. In pig-iron pro- 

2 W. T. Layton, An Introduction to the Study of Prices, London, 
1912. 



278 



THE REVIEW OF ECONOMIC STATISTICS 



duction, coal production, consumption of raw cotton, 
general prices, and security prices, the increases in Eng- 
land were less than in Germany, in some cases even 
less than in France. Only the gross receipts of the 
English railroads show as great gains as were made in 
Germany. We may conclude, therefore, that the de- 
velopments in the latter country differed in degree, at 
any rate, from those in most neighboring countries. The 
speculative boom in Austria might seem to be an ex- 
ception to this statement; but the German and Aus- 
trian money markets were so interdependent at this 
time that it is not surprising to find similar tendencies 
in them both. 

Such a great acceleration of industrial activity might 
well be expected to cause a greater demand for labor and 
a rise in wages in consequence. All accounts seem to 
agree that this is what occurred, 1 but definite figures are 
almost wholly lacking. In Table XIII I have brought 

TABLE XIII. — EMPLOYMENT AND WAGES * 



Year 



1871 
1872 

1873 
1874 

1875 
1876 
1877 
1878 
1879 
1880 



No. Employees 



French 
coal ind. 



83,649 
91,899 

IOS,SI3 
106,289 
108,712 
IIO,8o2 
108,907 
106,415 
102,472 
107,236 



German 
coal ind. 



150,005 
162,172 
178,867 
185,504 
183,823 
182,423 
168,761 
168,068 
170,509 
178,799 



German 
iron ind. 



23, I 9 I 
26,111 
28,129 

24,342 
22,760 

18,556 
18,188 
16,202 
17,386 
21,117 



Wages 



French 

coal ind. 

Francs per 

day 



2-45 
3-25 

3-35 
3-45 
3-35 



Ruhr 

district 

Marks per 

day 



3.OO 

4-5° 
5.00 
4.00 
3.80 
3.00 

2-57 
2.66 

2-55 
2.70 



* From Statistics for Great Britain, Germany, and France (National 
Monetary Commission); Coal Mine Labor in Europe (U. S. Com- 
missioner of Labor) ; Pieper, Die Lage der Bergarbeiter im Rukrrevier. 

together some data in regard to the mining industry. 
From these it appears that the number of workers em- 
ployed in the Prussian coal mines was about 19 per cent 
greater in 1873 than in 1871, and wages in the Ruhr dis- 
trict rose over 60 per cent during the same period. In 
France the number employed in the coal industry in- 
creased in greater degree (28 per cent), but wages much 
less (13 per cent). This will not seem surprising if we 
recall that in most other industries the expansion in 
France was less than in Germany, so that the general 
demand for labor was less affected. The prosperity of 
the German laborers is further shown by the increase in 
the deposits in the savings banks of Prussia during these 
years (Table XIV). 

The influence of the indemnity funds in promoting 
the industrial development just described cannot be 
measured quantitatively. To attribute the expansion 

1 G. A. Soetbeer, "Die Fiinf Milliarden," p. 47; B. Serrigny, Les 
Consequences Economiques et Sociales de la Prochaine Guerre, Paris, 
1909, pp. 385, 386. 

2 Max Wirth, Geschichte der Handelskrisen, 1874, pp. 656, 657. 



TABLE XIV. — SAVINGS BANK DEPOSITS * 

Prussia France 

Year (Million marks) (Million francs) 

1871 578.6 537 

1872 688.9 515 

1873 836.I 535 

1874 987-2 573 

1875 1112.0 660 

1876 1221.3 769 

1877 1300.0 863 

1878 1383.8 1016 

1879 1476.8 1155 

1880 1592.8 1280 

* From Statistics for Great Britain, Germany, and France (National 
Monetary Commission). 

wholly to this cause would be foolish exaggeration; for 
it would have been little short of a miracle if the hopes 
and plans of German industrial leaders had not been 
greatly affected by the general belief in the great 
promise which the future held in store for their country. 
The underlying psychological forces, always so impor- 
tant in matters of this kind, were probably never of 
greater weight. It would be equally erroneous, how- 
ever, to conclude that the indemnity payments were a 
minor factor in an almost inevitable course of events. 
Not only did the absorption of these great sums involve 
important readjustments in the German market, affect- 
ing money rates, prices, and profits more than in other 
countries, but the very expectation of these changes 
contributed in no small degree to the optimism already 
inspired. Investors, with many millions of their funds 
released by the expenditures and investments of the 
government, bought first the existing issues of securities, 
and then those of the newer concerns, with less and less 
discrimination. Speculators promptly saw the oppor- 
tunities for profit in these developments, and the way of 
the promoter became easier and easier. 

By the middle of 1873 there were signs that all was 
not well with the German industrial structure. Early 
in March the correspondent of the London Economist 
reported that it was beginning to be apparent that 
capital was not so abundant in Berlin as had been sup- 
posed, and at the end of April the break in the Austrian 
market, where the underlying conditions were much like 
those in Germany, gave warning that the soundness of 
many of the new undertakings was not above question. 
Many German firms and individuals thereupon began 
to " get out from under," taking considerable losses, 
but this did not become general till late in the year, and 
the Berlin market remained remarkably firm, consider- 
ing the circumstances. The breakdown in the United 
States, however, destroyed what confidence was left in 
German speculative circles, and the markets suffered a 
decline of vast proportions. Bank shares, which had 
been such favorites with investors, dropped more than 
80 per cent in some cases (Table VII), and the numerous 
companies which the banks had fostered suffered as 
badly. Wirth gives an account of 34 of the latter whose 
aggregate values decreased over 70 per cent after the 
first of April.' 2 Railroads, banks, and even manufactur- 



THE FRENCH INDEMNITY OF 1871 AND ITS EFFECTS 



279 



ing concerns went down in a general collapse, which 
lasted fully two months and affected the whole of the 
country. The French market, of course, could not hope 
to avoid all effects of these disturbances, but nothing 
approaching a panic developed there, and it may be said 
that France suffered less than any of the other principal 
European countries. The natural conservatism of her 
investors, and especially the forced economy incident to 
absorbing the great government loans for the indemnity, 
saved the country from most of the financial excesses of 
the period. 

The depression which, as usual, followed these trying 
developments was as long and serious as the previous 
expansion had been extraordinary. The more numerous 
the undertakings and the more optimistic the investors 
in such a period, the greater the probability that mis- 
takes will be made in the utilization of the country's 
resources, which will have to be undone or endured 
during later years; and insofar as the indemnity helped 
to increase these factors, it may be called responsible, 
indirectly, for the hard years which now ensued. 

Referring again to the various sets of figures we cited 
when outlining the period of expansion, we find a great 
change in the second half of the decade. General prices 
in 1879 were more than 28 per cent below the level of 
1873 (Chart IV). The prices of the three German rail- 
roads, which had reached their highest point in 1872, 
were also ahead of general prices in the decline, their 
average in 1877 being more than 37 per cent lower than 
in the former year (Chart V). This doubtless reflects a 
considerable decrease in the earnings of these roads; for 
the gross earnings per kilometer of the Prussian roads 
declined steadily during the remainder of the decade, 
except in 1879. The total gross earnings remained al- 
most stationary during these years (Table IX). The 
production of pig iron, which had increased 50 per cent 
during the years before the crisis, fell off nearly 15 per 
cent in the year following (Table X) and did not attain 
anything like its former proportions until 1878. The 
steady fall in prices caused the value of the product to 
decline even more than the volume of the output, which 
doubtless made the depression all the more serious. 
The coal output increased slowly after the crisis, but 
the value of the product fell nearly 50 per cent (Table 

TABLE XV. — MERCHANT MARINE* 

(Thousand Tons) 

Year Germany France 

1871 982-3 

1872 988.6 1080 

1873 999- 1 1060 

1874 I033-7 i°3° 

1875 1068.3 1020 

1876 1084.8 1010 

1877 1103.6 980 

1878 iii7-9 970 

1879 1129.1 930 

1880 1171.2 910 

* From Statistics for Great Britain, Germany, and France (National 
Monetary Commission). 



XI). About the only German industry to make en- 
couraging gains was the merchant marine (Table XV). 
The change for the worse in the position of the labor- 
ing classes may be inferred from the figures showing the 
number employed in the iron and coal mines (Table 
XIII). In the former the decline was continuous till 
1878 and the number did not regain the figure for 1871 
during the decade; in the latter there was practically 
the same development. Wages, of course, were much 
affected. The daily earnings of the Ruhr miners fell 
almost 50 per cent by 1879; and the workers of other 
districts were nearly as badly off, as may be seen from 
the data for wages in the manufacturing district of 
Chemnitz (Table XVI). Emigration, moreover, by 

TABLE XVI. — WEEKLY WAGES IN CHEMNITZ * 





1873 


1874 


l87S 


1876 


1877 


1878 




Marks 


Marks 


Marks 


Marks 


Marks 


Marks 


Spinners . . . 


14.2 


14.2 


14.2 


13.6 


13.6 


I3.6 


Weavers . . . 


14.2 


I4.2 


12.0 


10.8 


I0.8 


I0.8 


Tailors .... 


17.6 


17.6 


14.0 


II.6 


11.6 


11.6 


Lace 


6.4 


5-6 


4-7 


3-6 


3-2 


1.8 


Founders . . 


I7.J 


16.O 


15-6 


14.8 


14.8 


14.8 



* From " State of Labor in Europe,' 
Reports. 



United States Consular 



which these conditions might have been relieved, was 
greatly discouraged by the depression in the United 
States, and fell to a small fraction of the numbers in the 
early seventies (Table XVII). The deposits in Prussian 

TABLE XVII. — EMIGRATION FROM GERMANY* 

Year Number 

1870 70,333 

1871 102,740 

1872 154,824 

1873 134,194 

1874 75,502 

1875 56,289 

1876 50,587 

1877 21,964 

1878 7 24,215 

* From Serrigny, Les Consequences . . . dela Prochaine Guerre. 

savings banks increased, both the total and per capita 
figures; but this may have been due to the develop- 
ment of different habits of saving, rather than to greater 
prosperity of the laboring classes. 

This turn of events greatly altered the relation which 
the German money market bore to the rest of Europe. 
During the payment of the indemnity the Bank of 
Prussia had increased its cash holdings some 38 per cent 
(Chart VI), but now it faced a very different situation. 
The heavy imports which had begun when Germany 
was a creditor in all the money markets continued after 
the indemnity payments had ceased (Table I), and the 
country soon faced an adverse trade balance which 
carried a large amount of the recently acquired gold out 
again. The Bank was naturally concerned about the 



28o 



THE REVIEW OF ECONOMIC STATISTICS 



CHART VI. — COIN, DISCOUNTS, AND NOTES OF 

THE BANK OF PRUSSIA (REICHSBANK 

AFTER 1876), 1870-80 

(Annual Averages, Million Marks) 



UUO 






















Discounts 
Notes 


700 






/ 










































/ / 


\ 

\ 




















/ 
/ 
/ 
/ 

/ 


\ 
\ 
\ 
\ 

\ 














300 
POO 




/ / 
/ 
/ 
/ 
/ 






^^ 


** 

** 


"^ 

'N*^ 


-—., 


- — - 


--"~' 


f"^" 


' 



















/870 



/875 



S860 



resulting demands on its reserve and endeavored to 
check the drain. The comparative ease which had pre- 
vailed in the Berlin market disappeared after 1874 and 
discount rates were thereafter generally above those in 
London and Paris, as had been the case before the war 
(Chart VIII). Every rise in London rates seems to be 



CHART VIL — COIN, DISCOUNTS, AND NOTES 
OF THE BANK OF FRANCE, 1870-80 

(Annual Averages, Million Francs) 

















Coin 

Discounts 

Notes 






























































-\ 


~--p> 


S 
s 
S 


^•v 










/ 























A370 



/azs 



/3SO 



Germany was no more alone in this depression than in 
the expansion that preceded it, but suffered longer and 
more sharply. The price of the shares of the three 
French railroads slumped during the panic week in early 
November, but recovered promptly and continued to 
rise thereafter. The shares of the three English roads 
felt the effects of the panic rather more than this and 
suffered losses during the years of depression which 
followed, but the decline was neither so great nor of so 



CHART VIII. — MARKET RATES OF DISCOUNT IN PARIS, BERLIN, LONDON, 1874-80 

(Quarterly Averages) 



e% 



•STb 



■4<%> 



3%, 



£<% 



/to 











































Paris 

Berlin 








































# / 
















t* 
























n 










,\ 






4 


•\ 
















A 






t 


1 % 
1 « 

1 






• London 






V 


x.„ 


,'t 


< 


\ 


/ 


f 






1 


J 


A 




r 
/ 


/ 


f \ 
\ 

y 


\ 




§ 

■ 

u 


A 

1 


1 
% 

i 






h 


v 




4 




^^** 


~J 






% 

4 

1 


1 
\ 

V 



$ 
$ 


* 
* 
t 




\ \ 


.j 




V 





i 


» 


1 1 

y 


. V 

% 



t 

/ 

> 


-* 




\ 

-^ 




1 

/ 


1 


v. 




% 














V 






% 

\ 
\ 
\ 


\ 

V 


»*"" 






*m0 


f 






%# 










% 

% 




4* 







* 
































































/8 


r* 






/a 


7S 






/a 


re 






/8 


77 






/8, 


T 8 






/8 t 


?9 




1 


/e 


eo 



4°U 
2°to 



followed by protective measures in Berlin, while Paris 
rates maintain their traditional steadiness. The Bank 
of France, which had managed to avoid a serious deple- 
tion of its reserve 1 during the trying months of the pay- 
ments to Germany, while rendering the greatest service 
both to the government and to industry, now began to 
pile up the great stock of specie which was characteristic 
of its management ever afterward (Chart VII). Much 
of this increase, as we have seen above, came from Ger- 
many during the early years. 



long duration as in Germany (Chart V) . These different 
results were due, in large part at least, 2 to changes in the 
receipts of the roads. After a rather bad showing in 
1877 the receipts per kilometer of the French roads 
began to pick up and in 1880 surpassed the previous 

1 The proportion of silver in the reserve increased. 

2 The financial arrangements between the French roads and the 
government probably helped to sustain the value of their shares some- 
what. The shares of the Great Northern in England, on the other 
hand, were abnormally depressed for a time by a threat of serious com- 
petition in one of its most profitable territories. 



THE FRENCH INDEMNITY OF 1871 AND ITS EFFECTS 



281 



record figures of 1873. The total receipts increased 
steadily except in 1877. The English roads more than 
held their own until 1879 (Table IX). 

The figures for the other basic industries tell much the 
same story. The French output of pig iron was hardly 
affected by the crisis and continued to increase until 
1879. The coal industry was a little harder hit, but the 
value of the product fell much less than was the case in 
Germany (Table XI). The British coal industry, after 
some decline in 1874, recovered and remained almost 
stationary until 1880; while the iron industry suffered 
no such depression as is reflected by the German figures. 

In order to bring together the various comparisons 
made in the above paragraphs I have reduced the statis- 
tics for general prices, pig-iron production, coal produc- 
tion, coal prices, total railroad receipts, and railroad 
receipts per mile to percentages of the figures for 187 1, 
and combined these series in a simple arithmetic average 
for each of the three countries (Chart TX). 1 As indices 

CHART IX.— INDICES OF BUSINESS CONDITIONS IN 
FRANCE, GERMANY, AND ENGLAND, 1871-80 

(Averages in 1871 = 100) 



/>„„ OB 


















— — Germany 




















Ervg/arid 




















t 


■^ 






















^ 






- 






/ / 

/ / 








// 






s s 














// 


























• 


'X 








/ •■ 


f 










. \- 














































> 




















/ 





J67/ *37£ AS73 AS74 /&7J 



7077 /67£ 7679 /30D 



of business conditions these averages are, of course, not 
all that could be desired; but since comparable data 
concerning other significant factors are not available, 
we may take these as rough measures of the industrial 



situation. The greater outburst of activity in Germany 
in the early seventies and the more pronounced depres- 
sion which ensued there are clearly shown by these 
figures. It is probable that the choice of the year 187 1 
as the base exaggerates the fluctuation of the averages 
for France, since conditions in that year were somewhat 
below normal. 

The developments described in the above study lead 
to a conclusion somewhere between the exaggerated 
hopes entertained by the German business community 
for the most part and the strange rumors said to have 
circulated in France to the effect that the disasters 
beyond the Rhine had caused the government to con- 
sider the return of the indemnity to France. The 
marked expansion and later depression of German in- 
dustry was not wholly due to the receipt of the indem- 
nity funds — some such result was probably inevitable 
after the great military victory; but it seems reasonably 
clear that the influence on the German money market 
of the vast remittances from France was a powerful 
factor in this course of events. Herr Bamberger's fears 
had not been without foundation. There are some con- 
siderations, however, on the other side of the question. 
The wiping off of all the costs of the war from the 
budget of the new empire, the establishing of the 
German currency on a gold basis, and the undertaking 
of various domestic reforms without immediate expense 
were advantages which most Germans of the day con- 
sidered substantial gains from the French billions. 

1 These averages are as follows: 

Indices of Business Conditions in France, 
Germany, and England 

France Germany England 

1871 100.0 100.0 100.0 

1872 U3-7 JI 4-3 109.6 

1873 124-3 126.1 113.0 

1874 121.8 120.8 109.4 

1875 122.4 114.9 110.7 

1876 121.9 109.2 111.6 

1877 120.4 105.3 112.1 

1878 120.9 104.9 I0 9-5 

1879 U7-4 in.o 106.8 

1880 147-2 125.0 120.7